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STRONG DOLLAR IN CANADA IS SQUEEZING ITS ECONOMY
Canadian economists were right about one thing. A year ago when they were looking ahead, most of them predicted the Canadian dollar would strengthen against its American counterpart. But their forecasts fell short of the mark. Unfortunately for Canada’s export-based economy, the Canadian dollar did not rise by the 3-5% most economists had predicted. By November, it had posted a 15% gain, a 12-year high, and begun to crimp Canada’s long run of export growth and factory expansion. While the Canadian dollar has dropped slightly since that peak, few Canadian economists think its rise, which makes the country’s exports more expensive to Americans, and the problems for Canada’s economy that flow from it, are over.
Unlike the U.S., Canada has had an enviable economic run in recent years. Among other things, it has had only two quarters of contraction in 12 years -- one after the Sept. 11 attacks and the other after the SARS outbreak in Toronto. But with exports accounting for about 40% of the country’s GDP and the overwhelming majority of them heading to the U.S., the rise in the Canadian dollar means those good times may be squeezed.
Several factors underlie the rise in the Canadian dollar. Many Canadian provinces, as well as the federal government in Ottawa, are now posting budget surpluses. Long-running trade surpluses and rising commodity prices have helped push the currency up, too. But economists overwhelmingly agree that the Canadian dollar’s strength is mostly American dollar weakness. Some analysts have criticized the Bank of Canada and its governor, David Dodge, for making a bad situation worse by raising its critical lending rate by 25 basis points in September and again in October.Link here.
BIG TROUBLE FOR LITTLE LUXEMBOURG
Luxembourg, one of the EU’s smallest states, took over the EU helm on January 1 and will face huge challenges over the next six months, notably aiming to seal a deal on funding for the expanding bloc. Luxembourg Prime Minister Jean-Claude Juncker will also have his work cut out keeping a lid on EU strains when reelected U.S. President George W. Bush makes a landmark February visit, hoping finally to bury the Iraq war hatchet. The Grand Duchy of Luxembourg -- population 444,000 -- will be holding the EU’s reins of power for the 11th time since helping create the European bloc as one of its six founder members in 1957.
On the economic front Juncker, who doubles as his country’s finance minister, also wants to strike a deal at a March EU summit on reforming the tattered budget rules underpinning Europe’s single currency. Europe hopes that the Bush visit will show whether he is serious about boosting transatlantic cooperation, badly shaken by the Iraq conflict, as the U.S. leader suggested in a December letter to EU commission chief Jose Manuel Barroso. EU leaders will be keen to discuss relaunching the Middle East peace process with Bush, in particular after Palestinian elections in January which many hope could trigger a revival of hope for the region after Yasser Arafat’s death. Other key issues threatening to cloud the talks include Europe’s plans to lift an arms embargo on China, Iran’s nuclear plans, global efforts to tackle climate change and the record slump of the U.S. dollar.Link here.
It was tribalism that finished Rome, and it will finish Brussels too.
Whenever the subject of the EU comes up, someone is bound to compare it to the Roman empire. If the comparison relates to the beginning and subsequent development of that empire, it fails. But the end of the Roman empire in the West in the 5th century ad may well offer quite a good model of how EUthanasia will set in. The problem Rome faced was, do we fight to keep the barbarians out, or are we prepared to make concessions? Being pragmatists, they compromised. The Romans needed manpower, particularly soldiers, and the German tribes could provide it. The quid pro quo was that the Germans were accepted into the society and political structure of the Roman world, where many made their way to high office. But there could be no guarantees of good conduct.
The empire ultimately depended on there being enough revenue coming in from the provinces to pay the Roman army to suppress any provinces that removed their revenues from Rome by rebelling. That was a circle that needed constant squaring, but, as more and more tribes began to settle in the empire, Rome found it increasingly difficult to square it. As revenue was lost, so the state machine weakened ... so more territories rebelled ... so even less money came in -- and so on.
The question, then, boiled down to one of loyalty. To whom did these peoples feel they owed their allegiance? Rome, or their local tribal leader? More and more, the answer was the latter. As a consequence, those local Romanized land-owning elites who had effectively run the provinces (under the Roman governor’s jurisdiction) found that the Roman connection, which had once guaranteed their status and privileges, was increasingly worthless. They therefore began to refocus their loyalties on their local tribal leaders. Rome, in other words, was becoming impotent and irrelevant, an administrative and political centre with no means of commanding authority. By the end of the 5th century, Europe had reverted to a collection of individual states, and the foundations of modern Europe were being laid.
And so it will be again. Indeed, the process has started. Only on the ruins of the present bloated shambles might politicians start thinking seriously about a form of European cooperation that could work.Link here.
U.S. CONSUL WARNS OF BERMUDA GANGS
For the second time this year, the U.S. Department of State has retained a heightened profile for Bermuda, advising all potential U.S. visitors to beware of Bermuda’s gangs, avoid walking at night in case of sexual assault and to lock their hotel doors and windows at all times. On the State Department’s website, the U.S. Consulate General in Bermuda again attached several advisories regarding Bermuda’s “moderate but growing” crime rate. The State Department continued to say, “Bermuda has a moderate but growing crime rate. Examples of common crimes include theft of unattended baggage and items from rental motorbikes, purse snatchings (often perpetrated against pedestrians by thieves riding motorbikes), muggings, and thefts from hotel rooms.Link here.
MORE AMERICAN COMPANIES GOING THE SELF-HEALTH INSURANCE ROUTE
More than half of all insured U.S. workers have their coverage through self-insured or partially self-insured plans, and those numbers have risen over the past three years as companies turn to self-insurance to avoid the skyrocketing premiums charged by large insurers. Self-insurance is praised by some, who credit it with providing an alternative to high-priced health plans, thus giving more companies an incentive to offer insurance to their workers. But others caution that self-insurance leaves workers unprotected, particularly in the case of a bankrupt company.
With a self-insured health plan, a company assumes the financial risk of providing health benefits. Typically, a self-insured business will pay for each medical claim as it occurs instead of paying a fixed premium to an insurance carrier. Often, they hire a separate company to administer the claims. Many workers do not realize their companies are self-insured, experts say. That is because most people do not read the fine print in their health plan documents. And, often, they get insurance cards that may list an insurance company that only provides a network of doctors or other administrative services.Link here.
MARTÍN TORRIJOS ENJOYS HIGH RATINGS IN PANAMA
Martín Torrijos keeps a high level of public support in Panama, according to a poll by Dichter & Neira -- 79.6% of respondents rate the president’s performance as excellent or good. Torrijos, the son of Omar Torrijos, an army general who ruled Panama from 1968 to 1981, won the May 2 presidential election as a candidate for the Revolutionary Democratic Party (PRD) with 47.4% of the vote, and was sworn in on Sept. 1. The president vowed to develop new tax reform proposals, and pledged to sign a free trade agreement with the U.S. In his first few weeks as president, Torrijos established an “austerity plan” to deal with the country’s fiscal deficit, and ordered an audit of state-administered entities to root out corruption.Link here.
Panama Canal Authority celebrates 5 years of canal administration.
Five years since the Panama Canal was handed over to the Panamanian people from the United States, the waterway is running better and safer than ever in its 90 years of operation. Beginning a new century under Panamanian stewardship, the Panama Canal Authority (ACP) has set and broken records, made significant improvements and invested in the equipment and infrastructure of the waterway. These accomplishments have helped the “All-Water Route” (from Asia to America’s East Coast) become a very attractive option for the industry to move cargo between these markets.
The 5-year anniversary of the Handover fell on December 31, 2004. Since the Handover of the Panama Canal, the ACP has shifted its operations from a profit-neutral utility to a market-oriented business model, focused on customer service and reliability. The importance of the Panama Canal continues to grow because of increased trade with Asia, particularly in goods transported in containers.Link here. The Panama Canal’s home page is here.
Counting the offshore advantages of the Republic of Panama (2001 perspective).
The Republic of Panama is perhaps the ideal destination for anyone looking for serious financial privacy and no taxes, corporate or personal. Its proximity to the growing Latin market makes it a natural base for world business operations and, in spite of its history, it is not directly under the thumb of either the U.S. or the U.K. Nearly every major world bank has a full-service branch office in Panama, with representation from Japan, Germany, Brazil, and the U.S.
It has taken time for the banking sector’s reputation to recover from the aftermath of the 1988 U.S. military invasion, which left nearly every financial institution in Panama under suspicion of drug money activity. Under the direction of DEA and FBI agents, invading U.S. troops hauled away bank records alleged to show criminal conduct by the deposed president Noriega and his regime accused of drug trafficking. Since then, Panama’s bankers have been anxious to reassert the sanctity of their banking secrecy laws, which have a long history there. Along with Luxembourg and Liechtenstein, Panama adopted specific tax haven legislation in the 1920s.
A central part of that long tax haven tradition has been statutory guarantees of financial privacy and confidentiality. Violators can suffer civil and criminal penalties. There is no requirement to reveal beneficial trust or corporate ownership to Panama authorities. Bearer shares are permitted. And Panama has no double-taxation agreements and no tax information exchange agreements with other countries, despite pressure from the U.S.Link here.
Americans still finding Panama a tropical comfort zone.
Residents like to joke that Panama City is a lot like Miami or Los Angeles except that more English is spoken here. Four years after the last U.S. troops pulled out and Panamanians gained control of the canal that is their most important national asset, the Yankee footprint here remains deep and surprisingly welcome. Although anti-Americanism is on the rise in much of Latin America, Panamanians heartily embrace their onetime occupiers’ values and symbols, from language to music and fashion -- and the almighty dollar. A 1989 U.S. invasion ousted the last military strongman, Gen. Manuel Noriega, in an exercise of regime change for which Panamanians, by and large, remain gushingly grateful.
The country’s best and brightest benefited from generous scholarship programs that sent thousands of Panamanians to U.S. universities. Most of today’s business and political leaders, including President-elect Martin Torrijos and canal administrator Alberto Aleman Zubieta, picked up American habits as well as degrees, forging lifelong affinities for U.S. baseball teams, 4th of July barbecues and fast food. A love-hate relationship existed over the decades after the canal opened in 1914, with Panamanians resentful of U.S. control of the waterway and the 12-mile-wide Canal Zone that was fenced off from the rest of their country. On the other hand, the U.S.-built waterway lifted the country from banana republic to global trade and maritime player. When the canal reverted to Panama on December 31, 1999, the only real thorn in the relationship fell away.
Much of the persistent good feeling is the result of the high levels of intermarriage and dual citizenship during the long U.S. occupation of the Canal Zone. More than 10,000 U.S. troops and civilian contractors lived in the zone until the waterway was handed over to Panama, and even children born to two U.S. citizens retained the right to Panamanian citizenship after the troops’ withdrawal. Hundreds of “Zonians” have stayed here, strengthening the bonds between the two nations. Underpinning the U.S.-Panama bond is economics. The United States is the largest user of the canal, Panama’s most important trade partner and de facto central banker and monetary-policy controller.
Tourism tracts boast of the strong new presence of U.S. retirees, who have been drawn to Panama by its low taxes, affordable housing, tropical climate and contemporary, bilingual entertainment. Although he detects among Panamanian movers and shakers a slight increase in self-confidence and pride for having finally achieved full control over their national affairs, David Hunt, the retired Air Force colonel who closed up the U.S. canal shop four years ago, and then jumped at an offer to run the Panamanian-American Chamber of Commerce, said he has seen none of the resentment that U.S. citizens encounter almost everywhere else south of the border.Link here.
The latest Letter from Panama is out.
Christmas in Panama last year was, as usual, a colorful affair. Christmas, of course, is also a time for giving and the Panamanian government received a very nice surprise gift which augurs well for 2005. It was delivered by the international ratings agency, Fitch Ratings, that has assigned Panama’s US$600 million bond issue a long-term foreign currency rating of BB+. The agency said that “dollarization, a stable financial system and the government’s considerable financial and land assets” support the rating. Panama’s use of the U.S. dollar, as I have said frequently before, has produced a long history of monetary and price stability not found in other emerging markets where, for example, forced devaluations of currency have been experienced. Fitch is optimistic about the new government of president Martín Torrijos that intends to address fiscal and social security reform as well as the expansion of the Panama Canal. This report from Fitch coincided nicely with remarks from the IMF that has expressed its delight at actions taken by the Torrijos government to control public spending, reform taxes and spur on economic growth.
Panama’s progress is symbolic of a general upturn in the fortunes of Latin America as a whole. The region had its first current account surplus since the 1950s in 2003 partly due to robust exports of iron ore, copper and soya to China. After a 70% rise in 2003, Latin American stock markets were up by some 27% in U.S. dollar terms by the end of last year. Petrobrás, the partly state-owned Brazilian oil group, now has a market capitalisation of US$39 billion and its shares appreciated by 31% last year.
Chinese president Hu Jintao’s trip to Latin America at the end of last year emphasizes the growing ties with the continent. The Chinese recognize that direct investment in Latin America will guarantee a steady source of supply for its expanding economy. China’s demand for raw materials has increased prices in the international market considerably which, in turn, has contributed significantly to Latin America’s economic good fortune. Relations with China and Latin America have their problems and jobs is one of them. China’s cheap labor has already hurt Mexico’s exports to the U.S. Argentina, e.g., is worried about competition in its shoe, toy and textile industries. China, however, is a seductive trading partner and Argentine concerns are countered by Chinese plans to invest about $20 billion in Argentina during the next decade. At the moment, Argentina’s annual exports to China are worth around $2.6 billion which is more than six times the value of its imports from China.
China is one of the world economy’s emerging giants, along with India, Brazil and Russia, but, significantly, besides having a bigger GDP than the other 3 combined, it is also more integrated into the world economy. As China’s door opens wider to the world, it comes at a time when many trade regimes are being liberalized across Latin America. Direct trade has edged out some of the middlemen, a role in which the traders in Panama’s Colón Free Zone (opened in 1948 and the world’s second largest free trade zone) have traditionally found themselves. If the need for go-betweens is diminishing, however, the same cannot be said about the country’s canal that has a thriving and growing container business in large part due to Asian manufacturers (especially in China) trying to meet the demand of U.S. consumers.
About 60% of the ships using Panama’s canal travel between Asian ports and the eastern seaboard of the U.S. and it is estimated that total container traffic from Asia to the U.S. grew by over 14 per cent in 2004. The Panamanian authorities say that the canal is operating at 93% of its capacity. In fact, some of the ships are riding so low in the water at the canal’s Pacific entrance that they must offload containers before being able to enter the canal and have them carried by train and put back on board at the other end. The Chinese economy like “Old Man River” (the song from the musical, Showboat) “just keeps rollin’ along” -- just like the resulting benefits do for Latin America.Link here.
BUYING PROPERTY IN ANDORRA
Thinking of buying a ski-chalet? Thinking about life abroad? Andorra is one of the cheapest places to ski and is also a tax haven in case you were thinking of retiring there later in life. Hove-based foreign mortgage specialist Conti Financial Services has launched a mortgage specifically aimed at those wanting to buy in Andorra. Conti maintains that there is strong demand for property in this tiny principality in the Pyrenees, because it offers year round rental potential. Walking, fishing and duty-free shopping are popular year-round activities and Andorra can also offer the ultimate in relaxation at Caldea, which claims to be Europe’s largest health spa.
But the main attraction is skiing and Andorra offers a number of resorts where UK buyers are snapping up chalets and apartments to enjoy themselves, and to benefit from the buoyant rental market. Families tend to head to Pal and Arinsal, two village resorts that are connected by a ski lift and suitable for all levels of enthusiast, with Soldeu el Tartar offering everything the serious skier might want. For traditionalists, Pas de la Casa, located in the highest mountains, is the oldest resort in the principality with all the charm one would hope to find and ski runs to match.
The new Conti scheme offers two options for purchasers -- either a capital and interest loan for up to 30 years (to be repaid by age 70), or a loan which gives two years on an interest-only basis and the remaining term on capital and interest. Both options are on a maximum loan to value of 70% and there are no early redemption penalties.Link here.
U.S. CURRENCY’S WEAKNESS HAS FAR-REACHING RAMIFICATIONS
The U.S. dollar has sunk by 15% over the past five months against the mighty Romanian leu. That is no laughing matter for Mary Ann Bell, executive director of a charity called Romanian Christian Enterprises. The weakness of the U.S. currency, Bell said, “has made a huge difference in our ability to care for poor people and abandoned kids.” Although the charity’s annual budget of about $300,000 is still adequate to fund a school for disabled children, the organization can no longer send a doctor into mountain villages to provide free medical care and pharmaceuticals. It has suspended the interest-free loans it used to give to Romanian families down on their luck, and it has cut back on the amount of firewood it distributes to households desperate for heat.
An extreme example, perhaps, but the charity’s woes illustrate the far-reaching ramifications of the dollar’s decline -- about 16.5% since its February 2002 peak against a basket of major currencies, and a fall that has been gathering momentum over the past several weeks. The currency’s slide is being felt in ways as small as the rising price an American tourist pays for a plate of pasta in Rome and as large as the decisions by foreign companies to build factories in the U.S. as a hedge against fluctuating currency values. The cheaper dollar may help the U.S. economy by making American goods less expensive relative to those made abroad. But Americans like Ms. Bell cannot help but wonder how it can be good if their currency buys so much less overseas than before -- and many economists agree that the long-range implications may be wrenching.
Since Americans import more than they export -- the gap is running at about $600 billion a year -- foreigners effectively lend the difference, taking the dollars they receive for their goods and investing them in U.S. assets such as Treasury bonds. The net amount Americans owe foreign creditors has soared over the past eight years, to more than $3 trillion from $360 billion. The amount is equal to nearly 30% of the country’s annual economic output. The more this sort of indebtedness rises, the more reluctant foreigners may become to continue buying dollars.
No one can predict how this process will unfold. It could come in the form of a sudden sell-off of U.S. stocks and bonds by foreigners, which could throw the world economy into recession. Or it could be much more gradual, with foreigners demanding higher yields on the money they invest in the U.S., which could drive interest rates upward. Even analysts who discount the odds of a crisis think the dollar is probably headed significantly lower in coming years. “In the longer term, a weaker currency means that the United States and its citizens are poorer,” said Michael Mussa, a former chief economist of the IMF. “A weaker dollar is clearly necessary, but that doesn’t mean the weaker, the better. It’s like going to your boss and saying, ‘Please give me a lower wage.’ That’s sensible if the alternative is losing your job. But it doesn’t mean the lower, the better.”Link here.
U.S. dollar’s freefall is the world’s biggest problem for 2005 (and other predictions).
Here are what will be the big stories of 2005, according to my cloudy crystal ball. The killer tsunami that struck Indonesia, Sri Lanka, and India a week ago will cause years of ongoing economic damage and human tragedy. Damage to Thailand will be quickly repaired. But Indonesia and Sri Lanka, both rent by decade-old civil wars, will particularly suffer.
The biggest problem the world faces this new year is the continuing fall of the U.S. dollar. The Bush administration’s reckless spending, ruinously expensive wars in Iraq and Afghanistan, America’s trade deficit and credit spending frenzy are creating the perfect economic storm. A plunging dollar could cause foreign investors to start dumping U.S. securities and assets. The result: A potential worldwide financial crisis that could collapse the housing bubble, cause interest rates to soar, and send securities markets into freefall.
China’s banking system is a house of cards. Uncontrolled credit expansion has fuelled China’s property boom and international buying spree. Banks are swamped by bad, non-performing loans made to huge, money-losing state-owned corporations. Collapse of China’s insolvent banking system would threaten world financial markets. Vladimir Putin is determined to rebuild the old Soviet Union. By regaining state control of Russia’s oil industry, Putin is poised to become a kingpin of world oil, even an equal to the Saudi royals -- if he can raise enough cash to tap his nation’s vast but remote deposits.
The EU, for all its growing pains, economic doldrums, and bureaucratic obesity, has replaced the U.S. as the world’s champion of human rights and support for civilized world order. By contrast, under Bush, the U.S. has become a reactionary power devoted to protecting the status quo in league with Britain, Russia, China and India. In short, a rerun of the Holy Alliance of 1815 in which Europe’s autocrats sought to protect their power and privileges, and halt the rise of bourgeois democracy.
Revolution is under way in Saudi Arabia. The U.S.-backed royal family will be increasingly besieged in 2005. As for U.S. claims it will promote democracy in the Muslim world, any honest votes there will produce pro-Islamic parties advocating opposition to Israel, higher oil prices, and eviction of U.S. influence from the region. So no true democracy, just U.S.-implemented “guided democracy” in Iraq, meaning a Vichy regime that keeps U.S. bases, sells oil cheap, makes nice to Israel, and allows U.S. firms to exploit Iraq’s wealth.Link here.
THE 2005 INDEX OF ECONOMIC FREEDOM HAS BEEN RELEASED. U.S. COMES IN AT #12
With the publication of this edition, The Heritage Foundation/Wall Street Journal Index of Economic Freedom marks its 11th anniversary. The idea of producing a userfriendly “index of economic freedom” as a tool for policymakers and investors was first discussed in the late 1980s. The goal then, as it is today, was to develop a systematic, empirical measurement of economic freedom in countries throughout the world. To this end, the decision was made to establish a set of objective economic criteria that, since the inaugural 1995 edition, have been used to study and grade various countries for the annual publication of the Index of Economic Freedom.
The Index, however, is more than just a dataset based on empirical study. It is a careful theoretical analysis of the factors that most influence the institutional setting of economic growth. Moreover, although there are many theories about the origins and causes of economic development, the findings of this study are straightforward: The countries with the most economic freedom also have higher rates of long-term economic growth and are more prosperous than are those with less economic freedom (see chart).
The 2005 Index of Economic Freedom measures 161 countries against a list of 50 independent variables divided into 10 broad factors of economic freedom. Low scores are more desirable. The higher the score on a factor, the greater the level of government interference in the economy and the less economic freedom a country enjoys. These 50 variables are grouped into the following categories: Trade policy, fiscal burden of government, government intervention in the economy, monetary policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation, and informal market activity.
The United States, while still a vibrant country, is at a crossroads. Government spending expands without constraints. The massive farm subsidies of 2002 were followed by the massive Medicare prescription entitlement of 2003. Increased regulatory laws in the securities field have raised compliance costs in capital markets, forcing some firms simply to buy back their stock and retreat from public markets. Anti-dumping trade barriers are growing, and inflation rose following the steep plunge in the dollar. The country will either continue to be a leader in economic freedom or idly watch other countries pass it by. The United States’ overall score is unchanged this year, and its rank is 12.Link here. United States summary page is here. Book summary and chapter downloads available from this page.
Hong Kong remains world’s most open economy -- for now.
Hong Kong has retained its position as the world’s most open economy according to the annual Heritage Foundation/Wall Street Journal Index of Economic Freedom, although with many emerging nations rapidly opening up their economies, analysts have warned that the Chinese territory should not rest on its laurels. For the 11th consecutive year, Hong Kong assumed top spot in the index, thanks to its status as a free port and its low tax, laissez faire economy which places few restrictions on trade and investment. Just below Hong Kong in the index was the city-state of Singapore, also a free port, while Luxembourg was positioned in 3rd place.
Surprisingly, Estonia was seen as the 4th most liberal economy according to the index, highlighting the rapid progress being made in the former communist states of the eastern bloc towards opening up their economies to outside investment. Edwin J. Feulner, president of the Heritage Foundation, advised the Hong Kong government against introducing new taxes, such as the much talked about sales tax, if the jurisdiction is to maintain its long-standing position as the world’s freest economy.Link here.
Mirror, mirror, on the wall ... who’s the freest of them all?
The sun rises in 2005 on the freest and most prosperous world in history. According to Economic Freedom of the World: 2004 Annual Report, the average economic freedom rating for 123 countries rose from 5.1 in 1980 to 6.5 in 2002, on a scale from 1 to 10, with 10 representing full economic freedom. China showed a particularly strong move in the direction of economic freedom, moving from 3.8 in 1980 to 5.7 in 2002 (down slightly from 5.9 in 2000). But other countries also moved toward economic freedom, notably Australia, Chile, El Salvador, India, Ireland, Mauritius, New Zealand, and Uganda. Hong Kong was rated the freest economy in the world, but it declined slightly from 9.1 in 1995 to 8.7 in 2002.
The authors of the report, published by the Fraser Institute in Vancouver, pointed to several ways in which economic freedom has grown: 1.) The use of extremely high marginal tax rates fell sharply. In 2002, not a single country imposed a 60% marginal tax rate on personal income, while in 1980 49 did so. 2.) Exchange-rate controls were liberalized substantially. In 2002, there were only four countries with black-market exchange rate premiums of 25% or more compared to 36 countries in 1980. 3.) Tariffs were reduced. In 2002, the mean tariff rate was 10.4% compared to 26.1% in 1980. 4.) Controls on both capital markets and interest rates were relaxed.
The trend should continue. On Ronald Reagan’s 93rd birthday last February, China’s deputy finance minister Lou Jiwei told the Wall Street Journal that China would cut tax rates. “It’s a lot like Reaganomics,” Lou said. “We feel that only through simplifying things and lowering tax rates will revenue collection become more efficient.” Countries compete more than ever to attract businesses, investors, and citizens. High tax rates, capital controls, and excessive regulation drive investors away, so many countries have been trying to cut taxes and regulation. “Tax competition” helps protect taxpayers from their own governments.
But there are powerful forces that resist the call for less government. The European Union started as a free-trade area -- it was first known as the Common Market -- but today it is largely a giant cartel for high taxes. Its leaders try to “harmonize” tax rates by pressuring member countries with low taxes to raise them. President Putin has been tightening restrictions on press freedom in Russia and also moving to reverse some of the post-Soviet industrial privatization. Africa and the Arab world still have not tasted much economic freedom.
We must not forget the real importance of economic freedom. Besides the value of freedom itself, economic freedom leads to economic growth. The hurricanes that devastated Haiti earlier this year and the Asian tsunamis last week both reminded us of the real costs of poverty. It is the lack of wealth that forced so many people to live in homes that could be easily destroyed by hurricanes and tsunamis. Economic freedom means more wealth for the whole society, which means better-built homes and better warning systems in case of disaster. For those of us who want the poorest people in the world to have better lives, the challenge is to continue the spread of globalization, resist tax cartels, and give more people more opportunity to own stocks, bonds, and other real assets.Link here.
CONSERVATIVES AIM TO SCRAP UK INHERITANCE TAX
Inheritance tax in the UK could be scrapped under tax reform plans being considered by the Conservative Party. A reduction or removal of IHT is part of the Opposition’s pledge to remove the inequities and complexity of the tax system, and could cost a future Tory government some £2.9 billion in lost yearly revenues. However, citing independent research, the party claims that one in eight people will be caught in the Inheritance Tax net in five years’ time -- compared with just one in 40 five years ago -- if the current system remains unreformed. While the inheritance tax threshold, currently £263,000, has risen by 32% since the Labour government came to power in 1997, house prices have soared by 138% over the same period.
To counter the growing IHT trap, Shadow Chancellor Oliver Letwin has proposed five options for reform: abolishing the tax, lowering the current 40% rate, exempting principal residences from inheritance tax, raising the current £263,000 threshold, and linking the threshold to increases in house prices.Link here.
IMF APPROVES ROMANIAN FLAT TAX
The Romanian government announced that the IMF has approved tax reforms that have ushered in a radical new flat tax. A statement released by Prime Minister Calin Popescu Tariceanu following a meeting with IMF representative Graeme Justice revealed that the fund viewed the tax changes as “good fiscal policy”. The reforms, the result of an emergency government decree in late December, and introduced on January 1, replaced the multi-tier personal income tax system and the 25% corporate tax with a single flat tax levied at 16%. The new centrist government of Tariceanu is hopeful that the tax cuts will attract foreign investment and smooth the path towards entry into the EU.Link here.
EU TAX DIRECTIVE WILL BOOST GRANDFATHERED BONDS
The new EU legislation introduces exchange of information or a withholding tax for interest payments to retail investors across the EU. However, bonds issued before March 1, 2001 and not increased in volume after February 28, 2002 will remain unaffected. As the transition period lasts for seven years, only bonds maturing before July 2012 will be exempt. These issues are otherwise known as grandfather bonds. The volume of jumbo covered bonds with grandfathered status maturing in this period is €180 billion.Link here.
INLAND REVENUE TARGETS ENTREPRENEURS’ OFFSHORE ACCOUNTS
David Varney, executive chairman of the Inland Revenue, has launched a specialist unit to target entrepreneurs who use offshore bank accounts to avoid paying tax. According to tax advisers, Varney’s team has targeted a number of high-profile entrepreneurs, City figures and wealthy individuals who are thought to have used offshore trusts and other vehicles to avoid paying tax. Varney has pledged to get tough against abusers of Britain’s tax laws and there are hopes that a number of investigations against rich individuals could be concluded within months. In the most serious cases the individuals involved face prosecution.
“The Revenue is targeting individuals who have hidden their assets offshore,” said one tax adviser. A spokesman for the Inland Revenue confirmed the creation of the team and the crackdown on the use of offshore accounts to hide assets. “The Revenue learnt about the use of trusts and other offshore vehicles being set up to hide wealth and avoid paying tax. The special compliance office has set up a dedicated team focused on tackling this abuse.”
Using new powers the Revenue is said to have applied pressure on banks and financial institutions with a UK presence to deliver a list of offshore accounts. The Revenue is also thought to have focused on the use of credit cards connected to offshore accounts, obtaining details of transactions processed in the UK. Staff training throughout the Revenue has been stepped up to raise awareness of the use of offshore accounts.Link here.
10 EX-DIRECTORS FROM WORLDCOM TO PAY MILLIONS
Ten former directors of WorldCom, the telecommunications company whose bankruptcy was the largest in history, have agreed to pay $18 million of their own money to settle a class-action lawsuit by investors who lost hundreds of millions of dollars when the company collapsed in July 2002. The agreement by directors to dig into their own pockets, which is part of a $54 million settlement with plaintiffs led by the New York State Common Retirement Fund, is a remarkable concession. Directors have always relied on their company’s insurance to cover costs associated with securities cases and settlements.
The settlement is a disturbing precedent for directors, whose duties to look after shareholders’ interests have come under harsh scrutiny in the three years since the failure of Enron. Investors have become increasingly frustrated as company directors and officers escaped financial responsibility for losses incurred as a result of fraud. Companies whose executives are accused of engaging in fraudulent practices typically pay those executives’ legal bills and the fines that can result when regulatory proceedings against them are settled. And directors almost never pay in such settlements because they are covered by insurance.
The directors’ personal payments were a requirement of any deal from the start of the negotiations, according to lawyers involved in the settlement. Given the size of the WorldCom debacle, the investors who brought the case sought to make an example of the directors, lawyers involved in the settlement said. The amounts being paid will differ for each director. While the exact individual amounts were not disclosed, the payments will account for 20% of the directors’ aggregate net worth, not counting their primary residences and retirement accounts.
It is clear that the directors faced increasing pressure to settle as the jury trial, which is scheduled to begin on Feb. 28, drew closer. The numerous corporate scandals have heightened public skepticism over the actions of executives and directors. While the insurance policy for WorldCom directors and officers provided $100 million in coverage, the risk was that the directors’ exposure could have been much greater. A securities lawyer who is not involved in the case said that the directors might, indeed, have settled because of the enormous liabilities faced in the jury trial. Last month, for example, the judge overseeing the case stated that the prospectus in one WorldCom bond offering was false and misleading.Link here.
THIEVES USE eBAY FOR STOLEN GOODS
Stealing the merchandise was the easy part. The ring of young men and women had become pros at snatching cashmere sweaters, perfumes and other expensive items from the likes of Abercrombie & Fitch, Victoria’s Secret and Pottery Barn. The problem was how to turn the goods into cash. Hocking the wares on the black market was out -- they did not have the contacts. And any attempt to return the goods for refunds would probably be rebuffed without some proof of purchase. Soon they hit upon a solution: eBay.
The Silicon Valley-based auction house has become a fabulously successful mechanism for sellers of all kinds: mom-and-pop jam makers, collectors of fine antiques, people who just want to make a few bucks off the stuff collecting dust in their basement. With its global customer base of more than 100 million and software that allows strangers to exchange goods and money without ever meeting, it has maximized profit for its retailers. It has done the same for thieves. The shoplifters discovered some stores would allow them to return the goods without receipts for store credit or gift cards. They then sold those vouchers on the giant online marketplace. It was easy, instant and anonymous. They got 76 cents per dollar of stolen merchandise, a huge takeaway considering that shoplifters traditionally net 10% or less of the retail value of the items. The group made more than $200,000 in 10 months.
Law enforcement officials estimate that thousands of criminals continue to pull similar scams on the Internet, and enforcement is difficult. Breaking up the store-credit-for-cash scheme involved a massive, yearlong sting that took authorities across five Northeast states and required them to mine hundreds of computer files, conduct secret surveillance at stores and place an agent undercover to infiltrate the ring.
Arif Alikhan, an assistant U.S. attorney in California, said the Internet has transformed those who in another era might have been petty thieves into major worries for law enforcement. The Federal Trade Commission last year received a record number of complaints, some 166,000, related to Internet fraud linked to losses of nearly $200 million. Half of the cases involved online auctions.Link here.
PASSPORT FORGER PUBLISHES HIS MEMOIRS
Cioma Schönhaus helped hundreds of Jews in Germany escape certain death during the Holocaust, by faking their identity papers. In 1943, he found refuge in Switzerland. Now, more than 60 years later, he has published his story in a gripping autobiography The Passport Forger.
Cioma was raised in Germany, the son of Russian Jewish emigrants. After leaving art college, he was forced into work as a tailor, sewing machine mechanic, gardener, and metalworker. In June 1942, Cioma received his deportation papers, and was due to be sent with his parents to a death camp in Poland. Luckily for him, the police accepted an appeal from his employers asking for a deferment due to his war-related work in a munitions factory. Cioma said goodbye to his family in a synagogue, which had been turned into a deportation center. “I’d heard that Jews were being burnt. My mother refused to believe it, but I did,” he said. He was never to see his parents again.
Despite the reprieve, Cioma expected to be deported at any time. He decided to quit work and was one of 50,000 Jews who went underground in Berlin. For most people, this meant a life with no fixed address, no food tokens and no identity documents. Most Jews dared not show their faces in daylight for fear of being asked by soldiers to present their papers. Only 1,500 of those who went underground survived the war. Cioma, in contrast, had a taste of the high life. He was able to fake his own ID papers, and found a way of making money. Members of a church provided Cioma with identity papers. It was his job to remove the old passport photographs and create a counterfeit official stamp. In payment for the forgeries, he received food tokens.Link here.
PASSPORT CHIPS RAISE PRIVACY CONCERNS
A controversy is brewing over a U.S. State Department decision to put identification chips inside all new passport covers, a program scheduled to start by late 2005. The passport chips differ from those now commonly used for building entry or identifying the family dog. Those chips only provide one piece of information -- a unique identification number -- when pinged by a radio receiver. The passport chips will hold much more data, from 64 kilobytes to eventually 514 kilobytes, as much as the first personal computers. They will hold the same information as a paper passport plus a digitized photo and face template for the still-unproven facial recognition software, which also is supposed to identify you from a distance, unnoticed.
The fact that passport data can be read unencrypted, with no physical contact, from up to 30 feet away, according to the American Civil Liberties Union, upsets privacy advocates for two reasons. First, groups such as the ACLU note that information on your activities could be collected by government agencies (or commercial and marketing interests) without your knowledge. The ACLU obtained documents through the Freedom of Information Act that it says show how the U.S. government pushed the idea of unencrypted chips through the standards-setting International Civil Aviation Association over objections from Germany, Britain and other nations. The ACLU says the U.S. is trying to get a global biometric database online with little debate within the U.S., where there is strong resistance to a national I.D. card.
Second, many people are concerned that criminal or terrorist “data-skimmers” could set up chip readers to grab information from your passport and find out more about you, or “clone” your information and make fake passports, again without your knowledge. The State Department says it does not want to encrypt that data because the system will be too expensive for poorer nations to implement. Privacy advocates say a “smart card” swipe system like credit cards would have been just as efficient and far more secure.
If the system is implemented, there are steps you can take to protect your personal data from skimmers. Wrapping your passport in aluminum foil actually works. It is called a “Faraday Cage”, and it is the same thing that protects you from the microwaves as you watch your popcorn pop. The foil blocks electromagnetic waves so a nearby chip reader cannot force your passport chip to perk up and say “howdy”.Link here.
BANKS FEEL THE HEAT ON MONEY TRANSFERS
Until last year, federal prosecutors say, a tiny Brooklyn ice-cream shop was a vital cog in al-Qaida’s global fund-raising operation. Carnival French Ice Cream sold only the occasional cone from its ground-floor nook in a 4-story walk-up. Its real function, according to the government, was to move money. The shop took in $22 million between 1997 and 2003, the Justice Department alleges in federal court filings in New York. Prosecutors believe that Carnival diverted much of that money to a radical sheik in Yemen working with Osama bin Laden. The funds departed New York via the most modern and efficient method the American financial-services industry has to offer, an account at J.P. Morgan Chase & Co. The Carnival case, according to prosecutors, illustrates how since the late 1990s, major U.S. banks doing business with suspect money-transfer outfits like the Brooklyn shop have wired billions of dollars into and out of New York for suspected terrorist and criminal organizations.
Prosecutors have not accused J.P. Morgan Chase of wrongdoing related to Carnival. But the bank and some of its major rivals now find themselves in law enforcement’s cross hairs, as regulators and prosecutors crack down on what they say is widespread abuse in the $50 billion international money-transfer industry. Bank executives say they are being asked to bear a heavy burden in seeking to root out criminals who use them to move money. The executives say they are avidly trying to comply, but the authorities counter that the industry must do even more. One unintended consequence of this friction is that banks are simply dropping many small money-transfer businesses as clients, a move that could hurt millions of poor immigrants who send cash to relatives overseas.Link here.
HAS CONGRESS CREATED “FEDERAL POLICE POWER”?
Every American is just a few steps away from committing a crime. That point is raised in new publications that seek to cast a critical eye on lawmakers for their aggressive approach to going after supposed wrongdoing. “I think we should be alarmed on a number of different levels,” said Bob Barr, a former Republican member of Congress from Georgia who also used to be a U.S district attorney. “We’re changing the very nature of society -- the over-criminalization of society.”
From environmental infractions, to corporate crime and prosecuting vice crimes already covered by state law, the federal criminal code has grown 33% since 1982, with an estimated 4,000 punishable crimes on the books today, according to Measuring the Explosive Growth of Federal Crime Legislation, published by the Federalist Society in 2004. Contrasting the growth of federal crimes is an overall drop in the crime rate across the U.S., according to recent Justice Department statistics. The number of murders dropped by nearly 6% and overall crime dropped 2% in the first half of 2004 compared to the same time period in 2003. “Effectively, we’ve created a federal police power,” which was not the original intent of the framers of the Constitution, said John S. Baker Jr., a law professor at Louisiana State University and co-author of the report.
Plus, according to the Sentencing Project, half of the more than two million federal, state and local prisoners today are behind bars for non-violent offenses. The group said that is the result of tougher sentencing guidelines promoted by state and federal officials in the last decade. “Criminal law is sort of society’s last line of defense -- it’s really the hammer that is used against truly bad actors committing crimes we are all concerned about: killing, defrauding, stealing,” said Gene Healy, editor of the newly-published book by the Cato Institute, Go Directly To Jail: The Criminalization of Almost Everything. “When you throw someone who has filled a form out wrong in the same cell with an arsonist you really weaken the force of this sanction.”
Healy said some law enforcement officers are causing ordinary citizens to lose trust in police because they seem to be treating everyone like potential criminals. “If you are an ordinary citizen going about your business, you should be secure in knowing that you won’t be handcuffed and humiliated and if you ever have an interaction with police it will be polite and pleasant,” he said. “That’s the way it is in most places -- but as it becomes easier to throw the book at someone and give them Hannibal Lecter treatment for these minor offenses, than it’s going to change the way we view law enforcement.”Link here.
MILITARY TO INVESTIGATE FBI PRISON ABUSE CHARGES
The U.S. military’s regional command in Miami launched an investigation into FBI agents’ allegations that interrogators tortured prisoners at the Guantanamo Bay Naval Base. The military’s Southern Command, which has jurisdiction over the U.S. base in eastern Cuba, ordered two officers to investigate the abuse allegations contained in FBI e-mails made public last month. The FBI e-mails described Guantanamo prisoners being shackled hand and foot in a fetal position on the floor for 18 to 24 hours, and left to urinate and defecate on themselves.
One FBI agent reported seeing a barely conscious prisoner who had torn out his hair after being left overnight in a sweltering room. Another told of an interrogation in which a prisoner was wrapped in an Israeli flag and bombarded with loud music and strobe lights. The memos were written by FBI agents who had worked at Guantanamo and were made public by the American Civil Liberties Union which obtained them under the Freedom of Information Act. SouthCom spokesman Raul Duany said the investigation was not aimed at prosecuting anyone, but that evidence gathered in the probe could potentially be used later to bring charges against military and civilian interrogators.
The Bush administration also has been accused of abusing prisoners in Iraq and Afghanistan, and several military personnel have been charged. The U.S. holds nearly 500 foreign terrorism suspects at the remote Guantanamo base, most of them captured during the U.S. invasion of Afghanistan. The military began sending them to Guantanamo three years ago for interrogation and has charged only four of them with crimes.Link here.
Ugly truths about Guantanamo.
Somewhere in the U.S. government is the person who came up with the idea of fusing the wail of an infant with an incessant meow from a cat food commercial to torment detainees at Guantanamo Bay, Cuba. Detainees were also subjected to popular songs by the likes of Eminem and Rage Against the Machine. What Liberace would have done to an observant Muslim, I can only imagine, but it is a mad genius who realized that ordinary American culture can, with repeated exposure, be nearly lethal. God help us all. In George Orwell’s novel 1984, it was rats, as I recall, that were used to torture Winston Smith. It was not that the rats could do real physical damage; rather it was that Smith was phobic about them -- “his greatest fear, his worst nightmare” -- and so he succumbed, denounced his beliefs and even his girlfriend, and went back to his pub where he wasted his days drinking gin. This was Orwell’s future, our present.
The term “Orwellian” is much abused, and back in the actual year 1984 I thought Orwell himself overrated. The essential novelist of the 20th century, I thought then, was Kafka, who realized that there is no more efficient murder weapon than what the critic George Steiner called “the lunatic logic of the bureaucracy”. Orwell, however, was off by only 20 years. With immense satisfaction, he would have noted the constant abuse of language by the Bush administration -- calling suicidal terrorists “cowards”, naming a constriction of civil liberties the Patriot Act and, of course, wringing all meaning from the word “torture”. Until just recently when the interpretation of torture was amended, it applied only to the pain like that of “organ failure, impairment of body function, or even death.” Anything less, such as, say, shackling detainees to a low chair for hours and hours so that one prisoner pulled out tufts of hair, is something else. We have no word for it, but it is -- or was until recently -- considered perfectly legal.
The administration’s original interpretation of torture was promulgated by the Justice Department, under John Ashcroft, and the White House, under its counsel, Alberto R. Gonzales. The result has deeply embarrassed the United States. Among other things, it produced the abuses of Abu Ghraib prison in Iraq, which we were assured were an unaccountable exception. My God, if only higher authorities had known. Now we all know. The Red Cross has complained that some of what has been done at Guantanamo -- Guantanamo, not Abu Ghraib -- was “tantamount to torture”. The ACLU has complained, but that you would expect. So, though, have the FBI and military lawyers, former and current.
Just about across the board, the Bush administration has raised itself above the law. It pronounced itself virtuous, but facing a threat so dire, so unique, that Gonzales found the Geneva Conventions themselves “obsolete”. Such legal brilliance does not long go unrewarded. He has been nominated to become attorney general. Is it any wonder the Senate will probably soon confirm him? By next year, he will undoubtedly receive a cherished Presidential Medal of Freedom, awarded to those who successfully serve the president but dismally fail the nation. In the audience, unseen but nonetheless present, Orwell and Kafka look on. The revelations coming out of Guantanamo are hideous, and soil us as a nation. It is as if the government is ahistorical, unaware of how communists and fascists also strained language and ushered the world into torture chambers made pretty for the occasion. We now keep some pretty bad company. Gonzales is ticketed maybe for the Supreme Court because he winked at torture and yessed the president. He is Kafka’s man, Orwell’s boy and Bush’s pussycat. Know him for his roar.Link here.
ENDLESS DETENTION, FROM GUANTANAMO TO “CAMP 6”?
In a meadow near Windsor one fine day in 1215, King John, under pressure from disgruntled nobles, affixed his royal seal to the Magna Carta, clause 39 of which provided that, “No free man shall be taken or imprisoned or disseised or outlawed or exiled or in any way destroyed, nor will we go or send against him, except by the lawful judgment of his peers or by the law of the land.” The War on Terror is often framed as a clash between western champions of modernity and the medieval mindset of Salafis. Yet these days our own commitment to even medieval guarantees of due process often seems, at best, half-hearted.
The Pentagon and CIA are developing “long term solutions” for terror suspects held at Guantanamo Bay and various CIA facilities whom the government intends neither to release nor, due to lack of evidence, to try in court. Proposals include the construction of “Camp 6” to house 200 people. Indefinitely. Sen. Richard Lugar (R-Indiana), who chairs the Senate Foreign Relations committee, has already distanced himself from the idea, agreeing with Sen. Carl Levin (D-Michigan) that “some modicum of due process” is required before even foreigners are imprisoned for life. Yet with details still maddeningly vague at this stage, nobody seems entirely sure yet just what makes a modicum.
The Supreme Court’s ruling in Rasul v. Bush this summer established that detainees at Guantanamo’s Camp X-Ray have a right to some sort of review of their designation as enemy combatants. Most of the 550 prisoners (a term the administration continues to reject -- “detainees”, please) still held at Guantanamo have since been affording such a hearing. Two have been recommended for release. Civil rights attorney Harvey Silverglate suspects the government may attempt to sidestep the controversy by “plunging into one of the glaring loopholes in the Supreme Court’s decision. The Court’s ruling in Rasul turned on its finding that, despite being located on Cuban soil, Camp X-Ray is de facto under the “complete jurisdiction and control” of the U.S. That leaves open the possibility, says Silverglate, that a U.S.-sponsored prison on foreign soil, over which another government exercised greater nominal control, might escape such scrutiny.
Lives are at stake in the War on Terror, of course. But lives are always at stake. When we release murder suspects whose guilt cannot be proved beyond a reasonable doubt, we implicitly commit ourselves to living among people we imagine are quite likely killers. We decided long ago, at least when it comes to domestic justice, that there are abysses into which a free society will not stare, even at the cost of assuming significant risk. But when those same risks come clothed in the words war and terror, we become suddenly timorous. We are at war. But even wars have rules, and even prisoners of war are supposed to be tried for war crimes or, at war’s end, released. The rules are trickier now: the war is not over until we say so. For practical purposes, if the government has its way, that will mean we assume the power to watch men, so long as they are foreigners, grow old and die in a cage, either here or abroad, without affording them even the mildest presumption of innocence.Link here.
WHY THE SUPREME COURT’S WIDELY PRAISED RULINGS ARE BAD FOR AMERICA
If you were relying solely on media accounts for guidance, you would have gotten the impression that the Supreme Court’s June 28 rulings on “enemy combatants” were a clean sweep for civil liberties. With few exceptions, reporters and commentators interpreted the rulings as unwavering affirmations of the judicial branch’s authority in the face of an overreaching executive intent on detaining, indefinitely and incommunicado, citizens and noncitizens designated as enemies in the war on terror. Civil liberties groups were similarly effusive.
The reality, however, was significantly less uplifting. Berkeley law professor John Yoo, a former official in John Ashcroft’s Justice Department, concluded that the Court had left the government “with sufficient flexibility to effectively prevail in the future.” The effects of the rulings have yet to be fully felt since the proceedings have a long way to go before they are finally played out, but the fine print of the Court’s controlling opinions, combined with the manner in which the government is proceeding with enemy combatant hearings, strongly suggests that widespread proclamations about the triumph of liberty were premature and probably in serious error. Each decision included enough qualifications and concessions to eviscerate in practice the due process rights that the justices praised in theory.
Observers will likely marvel for a long time at how the Supreme Court’s noble-sounding rhetoric turned out to have so little influence on the government’s actual conduct. I am reminded of a toy I enjoyed as a young boy. It was a small jack-in-the-box type of gizmo with a lever on one end. After you pulled the lever from “off” to “on”, the box started whirring and the lid popped open. A mechanical hand slowly emerged and grabbed the lever, pulling it back to the “off” position. The arm then withdrew, the lid closed, and the device shut down. There was a lot of action, but it did not accomplish much.Link here.
WASHINGTON IS A SLEDGEHAMMER; WE ARE NAILS
Congress in 1970, responding to a supposed “wave of organized crime”, passed the infamous statute known simply as RICO, which was a mechanism to try alleged mafia figures in federal courts where convictions would be easier. The ACLU and other concerned groups and individuals warned that this new law soon would be abused, but Congress and others ignored the warnings. Not surprisingly, RICO ultimately came to be the ultimate weapon that federal prosecutors could use against individuals and business owners who decidedly were not part of “organized crime”, but the provisions of the law are so powerful that a RICO indictment almost guarantees a conviction of some sort. (And, surprise, surprise, the ACLU itself dropped its official aversion to RICO after pro-abortion groups successfully used the civil portion of RICO to win huge monetary judgments from groups protesting abortion.)
However, RICO is only a small (but powerful) weapon in the arsenal that federal prosecutors are able to use against people they deem to be a threat to state power or injurious to the approved “social order” as desired by the political classes. Today, we see the Patriot Act, a law that Lew Rockwell once told me was “RICO on steroids”, being used not to fight "terrorism," but rather to severely punish individuals in order to “send a message” to the rest of us. Federal prosecutors in Missouri even looked at the possibility of charging the creators of PayPal with Patriot Act violations.
Now federal prosecutors now have decided to put forth the legal fiction that a New Jersey man who was shining a green laser at air traffic near an airport is a “terrorist”. Federal authorities used the Patriot Act to charge David Banach, 38, with interfering with the operator of a mass transportation vehicle and making false statements to the FBI. He is the first person arrested after a recent rash of reports around the nation of lasers being beamed at airplanes. If convicted, Banach could be sentenced to 25 years in prison and fined $500,000. The FBI acknowledged the incident had no connection to terrorism but called Banach’s actions “foolhardy and negligent”. Being that it is extremely doubtful that Banach was trying to force a plane to crash -- the feds have admitted the same thing -- what we can say is that he did a very stupid and potentially dangerous thing. But doing something stupid and committing an act of terrorism clearly are not one and the same, yet federal prosecutors are using the Patriot Act to throw Banach into prison. To put it another way, the feds are using a sledgehammer in a situation that does not even call for a regular hammer.
Yes, Banach did something that was incredibly stupid, but there also was clearly no criminal intent. Once upon a time in America, intent -- the doctrine of mens rea -- mattered when it came to the pursuit of criminal acts. Today in Amerika, the only thing that matters is the accumulation of power by federal officials, who then wield it like a sledgehammer against the rest of us.Link here.
WHAT BECAME OF AMERICAN CONSERVATIVES?
America has blundered into a needless and dangerous war, and fully half of the country’s population is enthusiastic. Many Christians think that war in the Middle East signals “end times” and that they are about to be wafted up to heaven. Many patriots think that, finally, America is standing up for itself and demonstrating its righteous might. Conservatives are taking out their Vietnam frustrations on Iraqis. Karl Rove is wrapping Bush in the protective cloak of war leader. The military-industrial complex is drooling over the profits of war. And neoconservatives are laying the groundwork for Israeli territorial expansion.
The evening before Thanksgiving, Rush Limbaugh was on C-SPAN TV explaining that these glorious developments would have been impossible if talk radio and the conservative movement had not combined to break the power of the liberal media. There was a time when I could rant about the “liberal media” with the best of them. But in recent years, I have puzzled over the precise location of the “liberal media”. Both the New York Times and Washington Post fell for the Bush administration’s lies about WMD and supported the U.S. invasion of Iraq. On balance, CNN, the networks and NPR have not made an issue of the Bush administration’s changing explanations for the invasion. I do not see the “liberal hate” in The Nation’s feeble pages that Rush Limbaugh was denouncing on C-SPAN.
In the ranks of the new conservatives, however, I see and experience much hate. It comes to me in violently worded, ignorant and irrational emails from self-professed conservatives who literally worship George Bush. Even Christians have fallen into idolatry. There appears to be a large number of Americans who are prepared to kill anyone for George Bush. The Iraqi War is serving as a great catharsis for multiple conservative frustrations: job loss, drugs, crime, homosexuals, pornography, female promiscuity, abortion, restrictions on prayer in public places, Darwinism and attacks on religion. Liberals are the cause. Liberals are against America. Anyone against the war is against America and is a liberal. “You are with us or against us.”
This is the mindset of delusion, and delusion permits no facts or analysis. Blind emotion rules. Americans are right, and everyone else is wrong. End of the debate. That, gentle reader, is the full extent of talk radio, Fox News, The Wall Street Journal editorial page, National Review, The Weekly Standard and, indeed, of the entire concentrated corporate media where non-controversy in the interest of advertising revenue rules. There is nothing conservative about today’s “conservative” positions. To label them “conservative” is to make the same error as labeling the 1930s German Brownshirts “conservative”.Link here.
Liberals or Conservatives?
In my capacity as Western Civilization’s principal moral compass and intellectual lighthouse, I thought I might explain politics once and forever. There are altogether too many television shows about politics, too many books by people who would better pass their time in drinking. A final explanation of all things political will allow the papers to concern themselves entirely with coverage of ghastly murders, divorcing celebrities, and the incursions of space aliens into Puerto Rico. In America, politics breaks mostly into two groups, both of whom probably do not have enough to do: liberals and conservatives. I will explain each.
The liberal believes that the group has a right to control every aspect of everyone’s life. He may permit many freedoms, but only those of which liberals approve. Abstract or general freedom holds no appeal for him. The limbic instinct of the inveterate liberal is to harry, regulate, and stifle the individual, of whose penchant for independent action he is profoundly distrustful. Of course he does not think that he is stifling and imposing, but improving and instructing. For the unwilling he has no patience. The liberal believes in the “the masses”, in their infinite plasticity and potential for uplift and betterment, guided by him.
Liberalism is a feminine creed, embodying the kindness, short horizons, modest familiarity with reason, and placidity of the sex. It wants to buy people nice things without reflecting on how to pay for them. As good mothers will, it tries to protect everyone from everything. This is why the Democratic Party unrelentingly promotes security. Children must wear helmets while riding bicycles, canoeists must wear life preservers, we must outlaw guns, and smoking, and drinking while driving, and we should all wear sunscreen so as to avoid melanoma. We must worry about safety until there is nothing left in life but its preservation. With the seldom-recognized totalitarianism of the female, liberals seek to impose happiness, whether desired or not, by therapy and mood-altering drugs, whether desired or not. People must be happy, must be safe, must be forcibly socialized to a life of orderly boring routine whether they want it or not. The herd will provide for all; the price is that all must yield to the herd.
Conservatives by contrast believe that the individual has a God-given right to rob others. As the liberal has good intentions without rationality, the conservative has rationality without good intentions. He worships at the shrine of personal freedom, by which he means only his prerogative of making money regardless of damage done to others. He dislikes government as he dislikes anything that might inconvenience the pursuit of private rapine. Conservatism is a masculine faith, hard-eyed, coldly logical, frequently bloodthirsty, and typically out of touch with any reality beyond the commercial. The conservative has no concern for the less fortunate, who he believes probably deserve it anyway.
Conservatives are fond of war, partly to be sure because of the consequent flow of contracts but also because war is an age-old, genetically mediated hobby of males. A robust conservatism embodies all the brainless pugnacity of the male. Note that history is chiefly the record of armed bands of men poking each other with sharp objects, after which the survivors drink mead and tell themselves how glorious it was. The Iliad, Beowulf, The Song of Rolland, and the Old Testament, for example, all read like the annals of teenage gangs in Chicago. In the conservative mind, martial derring-do is wrapped like a birthday present in notions of glory, valor, sacrifice, virility, and transcendence. Women and most Democrats seem to see it in terms of deeply rooted and intransigent idiocy.
Conservatives conspicuously lack esthetic sensibility, a love of beauty being a concern of women and homosexuals. Show the conservative an Arcadian idyll of rolling fields and ancient oaks and he will see a site for several garish hotels, a parking lot, and a Wal-Mart. A dolphin, an elephant, a panda he calculates in terms of cans of dog food at 37 cents per, and, for an additional three cents a can to cover legal contingencies, he would pack his grandmother. He sincerely has no faint idea why anyone might object.
The solution to the conflict between the two groups should be obvious to all thinking people, if any: Drop them down an abandoned oil well, pump large amounts of potassium cyanide after them, and stuff Oprah into the hole as a plug. A cap of cement could not hurt. The silence alone would justify this wise deed.Link here.
SOCIAL SECURITY FALLS SHORT IN ETHICAL TEST
We are going to hear a lot about Social Security. We will hear dozens of sophisticated arguments from major think tanks of the left and right. Some will argue to continue the largest and most important social program in our history unchanged. Others will argue that it needs a drastic overhaul. Few will begin, as Charles Ramsey does, with a fundamental idea, that Social Security fails a widely known ethical test, the Four-Way Test of fairness. It is a vital part of Rotary International, having been created in 1932 by Herbert J. Taylor. Taylor was also a business leader who wanted Rotarians to practice the highest possible ethical standards in their professional lives.
The test is remarkably simple. We would do well if every business in America replaced overwrought “mission statements” with these 32 words. “Of the things we think, say or do: 1.) Is it the TRUTH? 2.) Is it FAIR to all concerned? 3.) Will it build GOOD WILL and BETTER FRIENDSHIPS? 4.) Will it be BENEFICIAL to all concerned?” And what about the test when applied to the Social Security program? “No one thought it passed any part of it,” said Mr. Ramsey, a member of the Rotary Club in Athens, Texas and now semiretired.Link here.
Why trust in Social Security?
Is it not a central argument among those who argue for the continuation of America’s premier socialist program, Social Security, that Americans cannot be trusted to voluntarily take care of the needs of their elderly parents? Let us set aside all the nonsense about “I put it in and therefore I have a right to get it out.” The irrefutable truth is that all the money that people “put in” is spent, poof, finis. There is no “I put-it-in” money that is earning interest in some investment fund. Most of the Social Security tax revenue that comes from Social Security taxpayers is transferred to Social Security recipients. It is gone. That is what makes Social Security a transfer program rather than a retirement program. Money is coercively taken from the young and productive and distributed to Social Security recipients.
The entire Social Security scheme is a lie and a fraud of monumental proportions – and has been since the very beginning. If someone in the private sector tried something like this, he’d be serving a long sentence in a federal penitentiary.
Lack of trust in the American people among the bureaucrats is not surprising, especially seeing that they have such a large stake in Social Security (i.e., government salaries and pensions needed to administer the program). What is sad is that ordinary Americans have bought into this mindset by losing trust in themselves to do the right thing, voluntarily. That is undoubtedly why they spend their time supporting plans to save and reform the crown jewel of America’s socialistic welfare-state system rather than telling their public officials to simply toss Social Security -- and the taxes that fund it -- into the dustbin of history.Link here.
THE ANATOMY OF THE STATE
Just as the two basic and mutually exclusive interrelations between men are peaceful cooperation or coercive exploitation, production or predation, so the history of mankind, particularly its economic history, may be considered as a contest between these two principles. On the one hand, there is creative productivity, peaceful exchange and cooperation; on the other, coercive dictation and predation over those social relations. Albert Jay Nock happily termed these contesting forces “social power” and “State power”. Social power is man’s power over nature, his cooperative transformation of nature’s resources and insight into nature’s laws, for the benefit of all participating individuals. Social power is the power over nature, the living standards achieved by men in mutual exchange. State power is the coercive and parasitic seizure of this production -- a draining of the fruits of society for the benefit of nonproductive (actually antiproductive) rulers. While social power is over nature, State power is power over man.
Through history, man’s productive and creative forces have, time and again, carved out new ways of transforming nature for man’s benefit. These have been the times when social power has spurted ahead of State power, and when the degree of State encroachment over society has considerably lessened. But always, after a greater or smaller time lag, the State has moved into these new areas, to cripple and confiscate social power once more. If the 17th through the 19th centuries were, in many countries of the West, times of accelerating social power, and a corollary increase in freedom, peace, and material welfare, the 20th century has been primarily an age in which State power has been catching up -- with a consequent reversion to slavery, war, and destruction.
In this century, the human race faces, once again, the virulent reign of the State -- of the State now armed with the fruits of man’s creative powers, confiscated and perverted to its own aims. The last few centuries were times when men tried to place constitutional and other limits on the State, only to find that such limits, as with all other attempts, have failed. Of all the numerous forms that governments have taken over the centuries, of all the concepts and institutions that have been tried, none has succeeded in keeping the State in check. The problem of the State is evidently as far from solution as ever. Perhaps new paths of inquiry must be explored, if the successful, final solution of the State question is ever to be attained.Link here.
The Lying State
The state’s lies are endless. The state is built and maintained by deception, disinformation, falsehood, and lies. But why, after the state has been caught in so many lies, do the American people continue to believe any official government report or pronouncement about anything? The following 15 lies are here presented in chronological order, and are some of the biggest lies to be found in American history by spokesmen for the state: politicians, government officials, congressmen, presidents, as well as official government publications.
It is instructive that war is the subject of nine of these lies. The state’s push for war brings out lies like nothing else. How else can you convince people that death and destruction are in their best interests? The lesson here is simple. The next time the state makes a pronouncement about how we need to intervene in some foreign country or about how some kind of food is bad for you or about how the economy needs to be stimulated by some new federal program -- take it with a grain of salt.Link here.
THIS IS THE CHINESE CENTURY
America may believe it is still at the heart of events, but the future is being shaped on the margins. The 18th and 19th centuries were the British centuries, in which industrial, political and imperial development in Britain shaped the world. The 20th century was the American century. The U.S. changed the world, providing a margin of victory in two world wars, and developing all the major new technologies: telephones, automobiles, television, jet aircraft, the Internet and so on. We all assume, as Washington undoubtedly assumes, that we are still living in the era of American hegemony, though it is already clear that China may be an emerging superpower.
I think that we may be missing an idea familiar to economists, which was developed in the second half of the 19th century. That idea is “marginalism”. It is one of those concepts universally accepted by professionals, but little understood outside. All that the “marginalist revolution” really amounted to was the recognition that economic change is determined by what happens at the margin of transaction. The extra apple sets the price for all apples. If there is one apple short, all apples cost more; one surplus, and they all cost less.
Clearly, the United States is still by far the largest and most powerful economy on earth, with the most powerful defence technology. Yet it is China, not the U.S., that is changing the global economy. As a producer, an exporter and as an importer, the growth of the Chinese economy is changing the marginal levels of global supply and demand. Over the weekend I was reading many forecasts by eminent economists of the world economy in 2005. The unanimity was astonishing, as one buzzed from channel to channel, subject to subject, and economist to economist. What is the prospect for the dollar? The euro? The oil price? Industrial commodities? Global equity markets? Bond prices? World trade and growth? In every case, China. The forecasts were not based on the absolute size of the Chinese economy, which is still much smaller than that of the U.S., but the forecasters were all convinced that marginal changes attributable to China would be the decisive factor. That and low Chinese costs.
The Chinese economy probably still has another 25 years of high growth ahead of it. Before it reaches full maturity, the Chinese economy will be a multiple of its present size. China has also understood the important of domestic and international freedom of trade and the need for the best possible relations with trading partners. With direct material and financial support, China has been one of the large contributors to the relief of the Indian Ocean countries after the tsunami disaster. The economic maturity of the new China has been accompanied by increasing political maturity. That is the best guarantee for the future of what is beginning to look like the Chinese century.Link here.
Social tsunami headed China’s way.
It may be that the social tsunami will hit China from the bottom-up. As the newspaper that used to be The New York Times, notes in a recent article, “Though it is experiencing one of the most spectacular economic expansions in history, China is having more trouble maintaining social order than at any time since the Tiananmen Square democracy movement in 1989.” The Times continues, “The police recently arrested several advocates of peasant rights suspected of helping to coordinate protest activities nationally. Those are worrying signs for the one-party state, reflexively wary of even the hint of organized opposition.”
The theme of The Times article is about economic inequality meeting up with an overbearing government, creating what amounts to insurrection at the grass-roots level. One quotation from a Chinese workingman shines a light on a troubling aspect of Chinese society: “The officials despise the ordinary people and are not afraid to bully them.” Another quotation from a Chinese worker speaks volumes: “I work like this so that my daughter and son can dress better than I do, so don’t look down on me. ... I sell my strength just as a prostitute sells her body.” I think that this last comment ought to give great pause to that recently-cited article of Western faith, if not hubris, that “We think and others sweat.”
There are many factors in the equation of Chinese social stability, certainly more than I can attempt to list here. But take a look at some of the most significant. There are the social dislocations, caused as tens of millions of Chinese move from rural landscape into urban enclaves. There is the loss of agricultural land as cities expand and pave-over the ground. There is the air and water pollution, which is legendary in China. Yes, China is on the move, but where is it heading? This leads to the next question in my mind. What happens when the water shortage and food shortfall in China -- both of which are man-made, artifacts of China’s focus on industrial growth -- start to hit home in a big way? Recall that ancient Chinese dynasties tended to last so long as they could keep the levees along the great rivers in good repair, divert water and control the floods.
People talk about capitalizing on the “emerging markets in China”, as if every Chinese person were a potential customer ready to line up at the Great Mall to buy one left-shoe. Yes, if it all works out it makes for a lot of left-shoes, and good business for left-shoe manufacturers. But what about the emerging market for political disaffection? When even a fraction of 1.3 billion people decide that they are disaffected, and that they are not satisfied with the quality of their governance, that is a lot of unpleasantness in one place. We will see. Whatever does happen, my bet is that something will occur in 2005 to change the happy economic trend lines in China.Link here.
LIBERTARIANISM AND THE LEFT
For a long time, libertarians have looked at the left as if they were highly contagious lepers suffering from acute kleptomania. The left was the threat to freedom, against which we had to conserve the established, supposedly free order. But as the government has continued to grow -- indeed, at an accelerated pace and in belligerent, imperialist ways -- under Republicans and conservatives, it has become clearer to at least some libertarians that what the right now seeks to conserve is not liberty at all. I would go further and say that for a long time our tacit alliance with the right has been wrong-headed, and that many, if not most, conservatives have been for years mainly concerned with conserving the state, including its proclivity to expand.
Russell Kirk said that conservatives believe in the “permanent things”. Insofar as traditional institutions can be conserved by the American right against encroachment from the state -- insofar as the right sees the state and their traditions as being at odds with each other -- the rightist inclination to conserve social order and combat statist encroachment is a wonderful, libertarian disposition. However, in our country the state has done nothing but grow, kill, maim and gobble up more resources, all at a fairly steadily increasing rate since the 1950s. The “permanent things” of the modern conservative movement are not only family, church and community. They also include U.S. militarism, perpetual (permanent) U.S.-imposed Wilsonian global revolution, and domestic leviathan. These last three features of the modern American state are the ones that today’s conservatives devote most of their energy into conserving. Whether they always have been is up to debate. That they are now is beyond question.
The American left, I daresay, shows more promise for embracing liberty, at least at this point in time. Perhaps no town in America better exemplifies the American left than Berkeley, and has all subspecies of the left represented. I know self-described Maoists, left-anarchists, green-anarchists, socialists, social democrats and all the rest. Many of them are rascals, ignorant of economics and history, or wannabe tyrants. And you know what? You will find such people in the conservative movement, too, and even in the libertarian movement. However, a good number of leftists are surprisingly libertarian-leaning. The Maoist I am thinking about told me his favorite Congressman is Ron Paul.
I am not trying to whitewash the left here. These guys have plenty of villains among them. But today’s American leftists -- not the Democratic establishment, but those intellectuals that read and think outside the box -- do seem to have more of an anti-authoritarian strain than the modern right. The left is, I daresay, less pro-mass murder than the modern right. This alone should complicate any case to be made that libertarians have more in common with the right. I would bet that, at this moment, the average liberal’s ideal government would be smaller and less harmful to liberty than the model state of the average modern conservative. It might sound nuts, but I think it is true.Link here.
A TALE OF THE RESISTANCE
Nationally syndicated newspaper columnist Vin Suprynowicz has written tirelessly of the abuses of government. Alas, the stories of the ham-handed antics of petty bureaucrats and the goons representing the various branches of this nations law enforcement agencies are so frequent he cannot cover all of them. But what has chronicling these government-induced tragedies that destroy peoples lives really accomplished? The government keeps getting bigger and more powerful, running roughshod over the citizenry. Thousands of new laws are passed each year by power-hungry nincompoops serving themselves in the public offices of political subdivisions throughout this country. None of these new laws promote the cause of freedom, just the opposite. But, the people gladly obey, enduring countless humiliations like sheep.
Finally, Suprynowicz is at the end of his rope. He has had it with government and the time for trying to educate the public or writing your congressman is past. The year is 2031 and a few heroes decide it is time to fight back with force in Suprynowicz’s first novel The Black Arrow. Despite being set more than two decades from now, the government abuses sparking the revolution actually happened during the past decade. Although fictionalized, most readers will recognize stories such as: a certain doctor being arrested and losing his license for over-prescribing pain medication; an innocent wife, her son and family dog being gunned down by federal agents; the free speech rights of an income tax protester being trampled upon; an occupied family-owned building being seized without due process through eminent domain; intrusive searches at the airport; a family man sent away to prison for unknowingly selling horticulture supplies to supposed drug dealers; and so on.
By 2031, the government has become even more out of control. The TSA-airport searches are expanded onto America’s city streets. Roadblocks are everywhere. Not having your children implanted with ID chips is a crime. Unlicensed daycare centers are raided. Those who get out of line are gunned down in the street. But a hero emerges to take the country back: the Black Arrow. And Suprynowicz makes his hero bigger than life -- a Randian superman. Our hero has no use for the “well-meaning, pasty-faced, overweight guys with pocket protectors. I’m sure they’re going to figure out a foolproof letter-to-the-editor that’ll win us back our freedoms any week now,” scoffs the Black Arrow in one of the books memorable passages.
But Mr. Suprynowicz has more on his mind than weapons, revenge and the evils of government. The Black Arrow character is what all men want to be and the guy all women want to be with. And the author has provided us with plenty of pleasing female characters to fall in love with our hero. These girls are not just beautiful, but smart, athletic and courageous. So, while the resistance drives this tale, there is more than one love story to be sorted out -- in R-rated fashion. Suprynowicz is especially adept at making the story’s government villains as despicable as possible.
For anyone who has been inappropriately felt up by a TSA agent at the airport, or had your property stolen for supposedly a public purpose, or been arrested for engaging in a voluntary exchange of products or services that is none of the government’s business -- this book is for you.Link here.
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